Money Basics: What's the Nasdaq?

Welcome to Money Basics, Yahoo Finance’s new personal finance series offering quick explanations for some of the most important terms involving your money.

When people talk about the Nasdaq, they could be talking about one of two different things.

The Nasdaq exchange

The Nasdaq is an actual stock exchange—like the New York Stock Exchange—with one key difference. All Nasdaq trades are done electronically, as they’ve been since the Nasdaq was launched in 1971. When it opened, the Nasdaq was only a quoting system, not a way to actually trade stocks. The Nasdaq exchange is the second-largest exchange in the world by market capitalization after the New York Stock Exchange.

There’s no NASDAQ trading floor. All trades are done on computers.

The Nasdaq composite

But when you hear someone say that the Nasdaq is up (or down), they’re likely talking about the Nasdaq composite. The Nasdaq composite is a measurement of how stocks are doing on the exchange. The composite is a weighted average of the more than 3,000 companies listed on the exchange. A weighted average means companies with higher stock prices have a greater effect on the Nasdaq composite’s movements.

The Nasdaq composite is heavily skewed toward tech companies like Apple, Google and Amazon and biotech companies like Acceleron Pharma Inc. and Vertex Pharmaceuticals. As a result of this, the Nasdaq was particularly hard hit by the dot-com boom and bust of the 1990s and early 2000s. The market lost half of its value during the bust, and it took nearly 15 years to fully recover the losses.

The Nasdaq has more listed companies and sees more trades per day than any other U.S. exchange. So what do the letters stand for? The National Association of Securities Dealers Automated Quotations.